Zhaojin Mining Industry (HKG:1818) Will Want To Turn Around Its Return Trends

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Zhaojin Mining Industry (HKG:1818) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Zhaojin Mining Industry:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.025 = CN¥783m ÷ (CN¥48b - CN¥17b) (Based on the trailing twelve months to March 2023).

So, Zhaojin Mining Industry has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 8.3%.

Check out our latest analysis for Zhaojin Mining Industry

Above you can see how the current ROCE for Zhaojin Mining Industry compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Zhaojin Mining Industry here for free.

SWOT Analysis for Zhaojin Mining Industry

How Are Returns Trending?

In terms of Zhaojin Mining Industry's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 5.0% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Zhaojin Mining Industry's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Zhaojin Mining Industry. And long term investors must be optimistic going forward because the stock has returned a huge 109% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Zhaojin Mining Industry, we've discovered 2 warning signs that you should be aware of.

While Zhaojin Mining Industry isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.